Angolan Tax Reforms to Result in Greater Costs for International Oil Companies

Michael Teague  |

Angola, Africa’s number two producer of oil behind Nigeria, is set to pass revisions to the tax code effective as early as today that will raise the cost of doing business for foreign oil companies operating in the country by as much as 10 percent.

The new law provides for a doubling of the amount companies pay to rent equipment and raises the cost of services and supplies by some 5 percent, and is the result of a tax reform effort undertaken by the government in 2010 to close tax loopholes and increase state revenue.

The country does not get much play in Western media, but in recent years has been able to rise to the status of a major player on global energy markets, especially with the end of nearly three decades of civil war that began in the mid-70’s and ended in the early years of the new millennium. Since 2006, the country has been a member of Organization of Petroleum Exporting Countries otherwise dominated almost exclusively by the petro-monarchies of the Gulf.

Angola’s production for the month of September alone averaged out to nearly 2 million barrels a day, most if not all of which is pumped from offshore platforms, and the bulk of which goes to China, by far the largest consumer of the country’s energy resources.

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Oil and diamonds together account for well over half of the country’s revenue on an annual basis. The Sonangol Group, a state-owned conglomerate, is the organ through which the political class exercises control of the country’s energy commodities.

By 2017, the government plans to switch the current changes to the tax code, which will shift from being levied on each separate stage of manufacturing to a value-added tax on finished products. But until then, a number of international oil firms could feel the pinch.

BP Plc (BP) , ConocoPhillips (COP) , Statoil ASA (STO) and ExxonMobil (XOM) are some of the big names with presence in Angola who are likely to be see profits impacted by the revamping of the tax code. Given the relative socio-political stability of the Southwest African country, as well as its vast reserves of oil and gas, however, to say nothing of the pressing need among major producers to find replacement reserves every year, it is difficult to imagine that anyone will be more than slightly inconvenienced by new levies.

So far, all of the companies mentioned have watched shares edge up slightly in early Monday afternoon trading.



[Image Courtesy of Wikimedia Commons]

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